Indian VC industry makes highest-ever deployment of $10 bn in 2019: Study

Driven by increased deal volumes and larger average deal sizes, the Indian venture capital (VC) industry made the highest-ever deployment of $10 billion in 2019, while it had dry powder of $7 billion as of 2019-end, according to a Bain & Company report.

The deployment in 2019 is a 55 per cent rise from that in 2018, led by a 30 per cent rise in deal volumes and a 20 per cent increase in average deal size over the previous year, the study ‘India Venture Capital Report, 2020’, which was conducted in partnership with Indian Private Equity & Venture Capital Association (IVCA), said.

Despite substantial capital deployment, dry powder availability for VC investing in India was at an all-time high of $7 billion at the end of 2019, indicating likely continued investment activity in 2020. The VC exit momentum in 2019 was in line with 2018 with secondary sales leading the mode of exits in India with an average exit value of around $39 million.

“Despite the global economic climate, India’s start-up and VC ecosystems continue to thrive as investors take a long-term view based on the country’s growth potential. We go into 2020 with record-high levels of dry powder, counter-balanced with caution and an underlying optimism in the long-term potential for the ecosystem,” Arpan Sheth, Partner at Bain & Company, one of the authors of the report, said.

About 80 per cent of VC investments in 2019 was concentrated in four sectors — consumer tech, Software/SaaS, fintech and B2B commerce and tech. Consumer tech continued to be the largest sector accounting for about 35 per cent of the total investments with several scale deals exceeding $150 million. Within consumer tech, verticalised e-commerce companies continued to be the largest sub-segment, but in addition, there were increased investments in healthtech, foodtech and edtech as well.

Both SaaS and fintech attracted significant investor interest and activity through 2019, with several early-stage and increasingly late-stage deals.

Sriwatsan Krishnan, Partner, Bain & Company, and co-author of the report, said: “The Indian VC industry had a landmark year in 2019. However, India-focused VC investments raised less funds this year, the fund-raising outlook for 2020 remains positive among both Limited Partners (LPs) and General Partners (GPs). Following the brief moderation that we saw between 2015 and 2017, the VC industry in India has been in a renewed growth phase and we see that continuing.”

“As far as start-ups are concerned, we have seen growth in both number of start-ups as well funded start-ups. The government’s flagship programmes like Startup India, Digital India and the Alternative Investment Policy Advisory Committee (AIPAC) will only accelerate this process,” Krishnan added.

The Indian start-up ecosystem, among the top five globally, continued to remain robust and grow rapidly.

Between 2012 and 2019, the number of start-ups in India increased by 17 per cent each year, while funded start-ups increased faster at 19 per cent per annum in the same period. Currently, of almost 80,000 start-ups in India, only about 8 per cent are funded, indicating room for investments.

India’s unicorn tribe also continues to grow with several firms in e-commerce, SaaS and fintech currently leading the way.

Fund-raising outlook

The fund-raising outlook for India-focused VC funds in 2020 is largely positive among both LPs and GPs, despite the global uncertainty.

India-focused VC funds raised about $2.1 billion in 2019, slightly lower than in 2018. The dip was the result of marquee funds that had already raised large sums, not going to the market in 2019.